[Sebastian Fidler]"there was a
3 or so second black gap between each
menu that ruined the effect."
Were you previewing within Encore when you saw this black gap?
If so, what you are seeing is Encore's preview function loading the next playback cell. The previewer switches to black while this cue-up is happening. With a DVD player the usual behavior is to freeze the last frame shown while the disc is cued to the next cell. Therefore, with an actual disc in a player you would not see the black. Also, with a disc the response time will probably be quicker.
Otherwise it sounds like the workflow you are using to get the effect you describe is correct.